Saudi Arabia plans to cut down its debt issuance in the latter half of 2024, buoyed by significant dividend payments from Aramco, as per Fitch Ratings. This follows a period of heavy debt issuance in early 2024, showcasing the government’s strategic fiscal maneuvers.
In the first half of 2024, Saudi Arabia stood out as the largest issuer of US dollar debt among emerging markets, excluding China, and remained the top global sukuk issuer. Fitch Ratings foresees substantial growth in the Kingdom’s debt market in the coming years, with expectations of surpassing $500 billion in outstanding value.
Bashar Al-Natoor, global head of Islamic Finance at Fitch, highlighted that most Saudi sukuk rated by Fitch are investment-grade, demonstrating the strength of the country’s Islamic finance sector. He emphasized the importance of Vision 2030 projects, diversification efforts, and regulatory reforms in strengthening the debt market.
Al-Natoor noted, We expect substantial dollar debt issuance to continue in 2025 as oil revenues moderate,
indicating the ongoing need for financing as Saudi Arabia diversifies its economy. These factors are set to significantly shape the Kingdom’s financial markets as it pursues Vision 2030 objectives.
By mid-2024, Saudi Arabia’s debt capital market had grown by 18% year-on-year to $407.7 billion, with nearly equal shares in US dollar and riyal-denominated issuances. The debt issued in the first half of 2024 matched the total for all of 2023, highlighting the rapid expansion of the debt market.
About two-thirds of the 2024 issuances were sukuk, underscoring the Kingdom’s preference for Shariah-compliant financing. Additionally, nearly 10% of the dollar-denominated debt comprised environmental, social, and governance (ESG) instruments, reflecting a rising interest in sustainable finance.
Foreign investor participation in Saudi Arabia’s domestic government debt market surged to 7.2% of local issuances by mid-2024, up from 0.2% in 2022. Local banks continue to dominate, holding over 75% of government debt, primarily focusing on sukuk due to Shariah compliance requirements.
Despite increased foreign investment—driven by reforms and inclusion in global bond indices—domestic banks remain the primary players, reinforcing Saudi Arabia’s position as the world’s largest sukuk issuer. Key reforms, such as entry into global bond indices and better integration with international central securities depositories, have boosted foreign investments.
However, Fitch Ratings warns that the debt market faces risks from oil price fluctuations, interest rate changes, the scale and purpose of debt issuance, and geopolitical uncertainties.